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Levelised costs and net present value comparison

In this assignment you will be carrying out calculations of the levelised costs of electricity for five different
types electricity plant in order to make a recommendation to a company board as to which type of plant they
should invest in.
You will assume the board has a sum of $500 million and they wish to maximise the return on their
investment. This does not mean they invest in the plant with the lowest levelised cost as two of the plants you
consider will provide peaking power. You will need to find out how much more the peaking power can be sold
for, on average, and use this to determine the net present value. The investment with the highest net present
value is the one which you recommend.
The five plants you are to consider are: i) Open cycle gas turbine (OCGT) for peaking power, operated
at 10% capacity factor, ii) Combined cycle gas turbine (CCGT) for intermediate and base load operated at
60% capacity factor, iii) Wind farm at 35% capacity factor, iv) Solar PV farm without storage at 18% capacity
factor, and v) Solar PV farm with battery storage, at 18% capacity factor with round trip efficiency for the
storage of 85%.
Data for the gas plants may be found in the IEA document on gas plants located on the e-learning site.
The current cost of gas in Australia can be found on the AEMO website. You should look into the future price
of gas, and may wish to factor uncertainty about this into a different discount rate.
For the solar systems assume establishment costs of $1.60 per peak Watt, with storage at $300/kWh of
storage capacity. Operation and maintenance costs are to be calculated at 1% of the upfront capital costs per
annum for the PV part of the system, and 2% per annum for the storage.
For the wind farm assume establishment costs of $1.40 per peak Watt, and operation and maintenance
costs of 1.4% per annum.
For all the calculations below you must show clearly how they were performed and what your input data
and assumptions are.
1. For each plant calculate the installed capacity you can build with the investment of $500 million.
2. For each plant determine the levelised cost of electricity for both 30 year and 40 year project lifetimes. Do
this for two base discount rates, 5% and 8%. This means four calculations for each plant. Present your results
in a table. For which of the plants do you think you might wish to use the higher discount rate, and why?
3. For each of the investment options determine the NPV. This will require assumptions about the price the
for which electricity is sold. You may assume different prices for the different plants, in particular the peaking
plants, but you must justify the prices you assume.
4. Based on the results of your calculations, write a one paragraph recommendation for your board to consider.

In this assignment you will be carrying out calculations of the levelised costs of electricity for five different
types electricity plant in order to make a recommendation to a company board as to which type of plant they
should invest in.
You will assume the board has a sum of $500 million and they wish to maximise the return on their
investment.